New York Mortgage Clauses: Acceleration, Alienation and Prepayment

These clauses answer different questions. They can appear in the same mortgage, and one event can implicate more than one clause. The exact note, mortgage, riders, notices and governing law control a live loan.

What is the fastest way to distinguish the four clauses?

The four-word memory line is:

Default accelerates. Transfer can trigger due-on-sale. Payment defeats the lien. Early payment raises the prepayment question.

That line is a classification tool, not a substitute for the documents or law.

Official source map

The New York State Department of State Real Estate Salesperson 77-Hour Curriculum includes acceleration clause, alienation clause, due-on-sale clause and prepayment penalty clause among the Subject 5 finance terms. The curriculum supplies the exam scope. It does not replace the governing statutes or a loan's language.

New York Real Property Law section 254 gives statutory meaning to stated short-form mortgage covenants. Subdivision 2 addresses an optional acceleration covenant after specified defaults. Subdivision 1 contains the traditional defeasance idea: when the stated debt and interest are paid as agreed, the mortgage grant ceases and becomes void.

Title 12 of the United States Code section 1701j-3, part of the Garn-St Germain Depository Institutions Act framework, defines a due-on-sale clause and generally permits enforcement according to the loan contract. It also lists protected transfers for certain residential property on which the lender may not exercise that option.

Prepayment requires a layered reading. New York General Obligations Law section 5-501(3)(b) supplies a specific New York rule for covered owner-occupied one-to-six-family loans and specified cooperative loans whose interest rate exceeds 6 percent. New York Banking Law section 6-l prohibits prepayment charges on covered high-cost home loans, and Banking Law section 6-m does the same for covered subprime home loans.

Federal Regulation Z also matters. Section 1026.37 requires the Loan Estimate for a covered transaction to identify whether a prepayment penalty exists and to provide specified details. Section 1026.43(g) tightly limits prepayment penalties on covered dwelling-secured transactions. Section 1026.32 defines the term for covered federal purposes and prohibits it on a high-cost mortgage.

Full payment and the public record are related but separate. Real Property Law section 275, Real Property Actions and Proceedings Law section 1921 and Real Property Law section 321 address certificates or satisfactions of mortgage and recording the discharge.

What should a student be able to do after this lesson?

You should be able to:

• identify the event that activates each clause;
• distinguish default from acceleration and acceleration from foreclosure;
• explain why alienation is the transfer trigger while acceleration is the possible remedy;
• recognize due-on-sale as another name for an alienation clause in common exam usage;
• apply the principal federal protected-transfer rules without assuming that every transfer is exempt;
• explain defeasance in a New York lien-theory state;
• distinguish payoff, satisfaction, discharge and release;
• decide whether a prepayment charge is merely stated, actually permitted or prohibited;
• read the Loan Estimate, note, mortgage, riders and payoff statement for different purposes;
• solve basic payoff and permitted-penalty calculations; and
• reject common answer choices that confuse a contract right with a completed legal process.

What is an acceleration clause?

An acceleration clause gives the lender or holder a contractual right, after a stated triggering event and compliance with applicable conditions, to declare the unpaid balance immediately due. The borrower loses the ordinary ability to keep paying the debt only in scheduled installments if acceleration is validly exercised and remains effective.

Real Property Law section 254(2) describes a short-form covenant under which the whole principal and interest may become due at the mortgagee's option after specified defaults. The statute's examples include default in an installment of principal or interest and certain failures involving taxes, assessments, insurance or a requested statement of the amount due. The wording also includes stated notice, demand and waiting periods.

The central exam relationship is:

Default is the breach. Acceleration is the lender's contract remedy. Foreclosure is the court process used to enforce the lien.

Those events may follow one another, but they are not synonyms.

Does one late payment automatically accelerate every mortgage?

No. A missed payment can be a default, but the result depends on:

• the note and mortgage language;
• whether the clause is optional or automatic;
• any contractual grace or cure period;
• required notices and their contents;
• federal and New York servicing or foreclosure protections;
• whether the holder takes the act required to exercise the option; and
• whether the default is cured or the debt is otherwise resolved.

Real Property Law section 254's model language makes the remedy optional and ties it to the specified defaults and waiting periods. A question that says only "the borrower missed a payment" does not establish every later step.

What can trigger an acceleration clause?

The contract may identify several material obligations. Common examples include:

• failure to pay principal or interest;
• failure to pay taxes, assessments or water charges when the loan requires it;
• failure to maintain required property insurance;
• an unauthorized transfer covered by a due-on-sale clause;
• failure to protect or maintain the collateral when the documents make that duty material;
• false statements or other breaches identified in the loan documents.

Avoid inferring a trigger from a generic list. Match the question's facts to the actual clause.

Is acceleration the same as a demand letter?

Not necessarily. A letter might provide a chance to cure and warn that acceleration could occur later. Another notice might state that the holder is exercising the option now. The documents and governing law determine what language and acts are sufficient.

For exam classification, ask two questions:

1. Does the notice merely describe a future consequence if the borrower does not cure?
2. Or does it state that the full balance has become due under the clause?

New York mortgage-acceleration litigation can affect limitation periods and foreclosure rights. That advanced doctrine belongs with the foreclosure article. This lesson stays with the clause and its function.

Is acceleration the same as foreclosure?

No. Acceleration changes when the debt is due. Foreclosure asks a court to enforce the mortgage lien against the property.

New York uses the judicial foreclosure process in article 13 of the Real Property Actions and Proceedings Law. A lender does not acquire the home merely by declaring the debt due. The holder must satisfy applicable contract and legal requirements and use the required court process. The foreclosure glossary entry is a useful short review, while the later foreclosure article will cover notices, filing, judgment, sale, redemption and deficiency issues.

What is an alienation clause?

An alienation clause restricts an unapproved transfer of the property or an interest in it and can give the lender the option to demand the secured debt. In mortgage vocabulary, it is commonly called a due-on-sale clause.

Federal law defines a due-on-sale clause as a contract provision authorizing the lender, at its option, to declare the secured sums due if the property or an interest in it is sold or transferred without prior written consent. The word option matters. A transfer does not mean the lender has already exercised the remedy.

The exam sequence is:

Transfer without required consent, then possible exercise of due-on-sale, then acceleration of the debt.

Alienation names the transfer issue. Acceleration names the payment consequence.

Why does a lender use a due-on-sale clause?

The lender evaluated a particular borrower, loan structure and collateral relationship. An unapproved transfer can place another person in control of the property without a reviewed assumption. A due-on-sale clause preserves the lender's contract option to require payoff or approve an assumption, subject to federal restrictions.

It can also prevent a low-rate loan from moving freely to a new owner when the contract and law permit enforcement. That economic effect does not change the legal analysis: start with the clause, then check the protected-transfer rules.

Does due-on-sale mean the buyer cannot assume a mortgage?

No. It means the contract may condition transfer or assumption on lender consent. A lender can approve an assumption when the loan program, contract and underwriting rules permit it. Approval can address credit, documentation, rate treatment, release of the original borrower and other conditions.

Avoid confusing three transactions:

The next article will examine assumption and subject-to liability in detail.

Can a lender enforce due-on-sale after every transfer?

No. Federal law protects specified transfers involving certain residential property. Under 12 U.S.C. section 1701j-3(d), for a real property loan secured by residential real property with fewer than five dwelling units, including qualifying cooperative stock and residential manufactured homes, the lender may not exercise the due-on-sale option solely because of listed events.

The statutory list includes:

1. creation of a subordinate lien that does not transfer occupancy rights;
2. a purchase-money security interest for household appliances;
3. a transfer by devise, descent or operation of law on the death of a joint tenant or tenant by the entirety;
4. a lease of three years or less without an option to purchase;
5. a transfer to a relative resulting from a borrower's death;
6. a transfer in which the borrower's spouse or children become an owner;
7. a transfer resulting from a dissolution-of-marriage decree, legal separation agreement or incidental property settlement in which the spouse becomes an owner; and
8. a transfer into an inter vivos trust in which the borrower remains a beneficiary and the transfer does not change occupancy rights.

This is a statute-specific list. Do not expand relative to every family member, trust or lease. Read the exact conditions.

Does placing a home in a trust trigger due-on-sale?

It depends on the trust and transfer. The federal protected-transfer rule covers an inter vivos trust transfer when the borrower is and remains a beneficiary and the transfer does not relate to a transfer of occupancy rights. A different trust arrangement can fall outside that protection.

An exam question should supply the facts needed to apply the rule. In a live transaction, the owner should obtain legal and lending advice before transferring title.

Does adding a spouse or child to title trigger due-on-sale?

The federal statute bars exercise of the due-on-sale option for a transfer in which the borrower's spouse or children become an owner, when the loan and property fall within the statute's covered residential category. The protected event is not a blanket rule for any person or any property.

Read these details:

• Is the person the borrower's spouse or child?
• Does the described conveyance fit the protected category?
• Is the property within the covered residential category?
• Is another transfer occurring at the same time?

Does an alienation clause prevent the borrower from selling?

It does not operate as a general ban on sale. It governs the loan consequence of a transfer. A typical arm's-length sale closes by paying off the existing loan from the seller's proceeds, recording the deed and arranging discharge of the mortgage. The buyer may obtain new financing.

If the parties propose to leave the old loan in place, the assumption, subject-to and due-on-sale issues become central.

What is a defeasance clause?

A defeasance clause provides that the mortgage's security interest ends when the borrower performs the secured obligation. In traditional language, payment defeats or makes void the mortgage grant.

Real Property Law section 254(1) expresses the concept in New York's statutory short-form mortgage construction. If the mortgagor pays the stated debt and interest at the required time and in the required manner, the mortgage grant ceases, determines and becomes void.

For exam purposes:

Defeasance protects the owner's right to have the mortgage lien end when the secured debt is satisfied.

It is the conceptual opposite of enforcement after default.

Does the lender receive title until defeasance in New York?

No. New York follows lien theory. A mortgage creates a lien securing the debt rather than transferring title to the mortgagee. The New York courts state that principle directly, including in Smith v. Bank of America, N.A..

Older mortgage language can speak in terms of a grant that becomes void after payment. Use that language to understand defeasance, but do not convert New York into a title-theory state. The mortgage glossary page reinforces the lien relationship.

Is defeasance the same as a satisfaction of mortgage?

They are related, but not identical.

• Defeasance is the contract concept that payment defeats the mortgage security.
• Satisfaction or certificate of discharge is the instrument showing the mortgage was paid or otherwise satisfied.
• Recording the discharge updates the public land records to show that the recorded mortgage no longer burdens the title.

Payment resolves the debt relationship. A recorded satisfaction resolves the public-record problem. A paid mortgage that still appears unreleased in the land records can interfere with a later sale, refinance or title policy.

What happens after a New York mortgage is paid in full?

Current New York statutes impose document and recording duties after the amounts due are paid.

Real Property Law section 275 states that when a real-property mortgage is due and payable and the full principal and interest due are paid, a certificate of discharge must be given and, generally, presented for recording within 30 days. The statute includes qualifications, exceptions and escalating liabilities for specified delays.

Real Property Actions and Proceedings Law section 1921 similarly requires a mortgagee, after payment of authorized principal, interest and other amounts due, to execute a satisfaction and generally arrange within 30 days for recording or delivery as properly requested. That section also supplies procedures for specified failures and unusual discharge problems.

Real Property Law section 321 directs the recording officer how to record a properly executed discharge and mark or index the mortgage as discharged.

For the exam, the simple chain is:

Payoff, satisfaction or certificate of discharge, then recording of the discharge.

Is a release clause the same as defeasance?

No. A release clause commonly permits specified property to be released from a blanket mortgage after stated conditions or payments are met. The remaining property and debt can stay subject to the mortgage.

Defeasance concerns satisfaction of the secured obligation and the end of the mortgage lien. A partial release concerns part of the collateral. A student should not choose release clause merely because the prompt says the entire debt was paid.

What is a prepayment clause?

A prepayment clause states whether and how the borrower can pay all or part of the principal before its scheduled due date. It can also state a prepayment penalty, charge or premium, but that term is enforceable only to the extent the contract and governing law permit it.

The Consumer Financial Protection Bureau explains that not every mortgage has a prepayment penalty. It advises borrowers to review the loan terms for when a charge can apply. On a covered Loan Estimate, the prepayment-penalty field and details help expose the feature before closing.

Avoid assuming that paying early automatically creates a fee.

What counts as a prepayment penalty under federal Regulation Z?

For a covered closed-end transaction, Regulation Z section 1026.32(b)(6) generally defines a prepayment penalty as a charge imposed for paying all or part of principal before it is due, subject to specified exclusions.

Examples can include:

• a percentage of the amount prepaid;
• a stated number of months of interest beyond what has accrued;
• a minimum finance charge that exceeds earned interest in circumstances covered by the rule; or
• a creditor charge that is waived only if the borrower keeps the loan for a stated period, unless a regulatory exclusion applies.

Ordinary recording, payoff or release-document fees are not automatically prepayment penalties. Apply the regulation's definition to the charge.

Are prepayment penalties permitted on a New York home mortgage?

The accurate answer is sometimes, for a limited covered transaction, when both the contract and applicable law permit the charge. There is no single rule for every New York mortgage.

Use this order:

1. identify the property, borrower purpose, lien and loan type;
2. read the note and addenda for an express prepayment term;
3. determine whether federal Regulation Z applies;
4. determine whether New York General Obligations Law section 5-501(3)(b) applies;
5. check whether Banking Law section 6-l or 6-m prohibits the charge;
6. apply any loan-program rule; and
7. calculate the charge only after establishing that it is permitted.

This order prevents the common error of calculating an unenforceable fee.

What does New York General Obligations Law section 5-501 say about prepayment?

Subdivision 3 applies to a defined loan secured primarily by an owner-occupied one-to-six-family residence or specified cooperative interest when the interest rate exceeds 6 percent per year.

For that covered loan, subdivision 3(b) states:

• the unpaid balance may be prepaid in whole or in part at any time;
• no penalty may be imposed for prepayment on or after one year from the loan date;
• a penalty before that time requires an express loan-contract provision;
• Banking Law sections 6-l and 6-m can prohibit the charge; and
• the instrument must state the prepayment right.

Do not shorten this to "New York bans mortgage prepayment penalties after one year" without the coverage conditions. The statute does not state that rule for every loan in the state.

What does federal Regulation Z allow for covered transactions?

Regulation Z section 1026.43(g) begins with a prohibition: a covered transaction must not include a prepayment penalty unless all listed conditions are met.

Among those conditions, the transaction must be a qualified mortgage under one of the provisions listed in the rule, its annual percentage rate cannot increase after consummation, it must not be a higher-priced mortgage loan as defined there, and the charge must otherwise be permitted by law. The maximum federal periods and amounts are:

• no penalty after the three-year period following consummation;
• no more than 2 percent of the outstanding balance prepaid during the first two years; and
• no more than 1 percent during the third year.

The creditor must also offer a qualifying alternative transaction without a prepayment penalty under the rule's conditions.

These are federal maximums, not automatic charges. A contract can provide less, and another law can prohibit the charge.

Are prepayment penalties allowed on high-cost or subprime home loans?

For the covered categories discussed here, no.

• Regulation Z section 1026.32(d)(6) prohibits a prepayment penalty on a federally defined high-cost mortgage.
• New York Banking Law section 6-l(2)(r) prohibits prepayment penalties and fees on a covered high-cost home loan and makes such a provision unenforceable.
• New York Banking Law section 6-m(2)(m) prohibits prepayment penalties and fees on a covered subprime home loan and makes such a provision unenforceable.

The labels high-cost and subprime have statutory definitions. Do not apply the prohibition merely because a loan seems expensive in ordinary conversation.

Where should a borrower look for a prepayment term?

Review:

• the Loan Estimate's Loan Terms section;
• the Closing Disclosure;
• the promissory note;
• any addendum or rider;
• the mortgage or security instrument;
• later modification documents; and
• the servicer's current payoff statement.

The promissory note is the core debt document. The article on the difference between a promissory note and mortgage explains why a student must not treat the two documents as interchangeable.

Is a prepayment penalty the same as a due-on-sale clause?

No.

• A due-on-sale clause can make the debt due because ownership or an interest was transferred without required consent.
• A prepayment penalty is a charge for paying principal before its scheduled due date when the charge is permitted.

A sale can cause both topics to appear because the seller often pays off the existing loan at closing. One clause explains why the debt may be called due after a transfer. The other asks whether a charge can be added to the early payoff.

Title 12 of the Code of Federal Regulations section 191.5(b)(2) bars a prepayment penalty or equivalent fee when the lender declares the loan due by written notice under a due-on-sale clause or begins a proceeding to enforce that clause. Keep the remedy and fee analysis separate.

Is a prepayment penalty the same as interest due through payoff?

No. A payoff can include accrued interest through the payoff date even when there is no prepayment penalty. It can also include other authorized amounts, credits and fees.

A simple teaching formula is:

Estimated payoff = unpaid principal + accrued interest + authorized charges - credits

The servicer's written payoff statement provides the date-specific amount and payment instructions used for an actual closing. A monthly statement balance can differ from a payoff quote because interest and other amounts continue to the selected date. The closing parties should resolve any discrepancy rather than infer the payoff from the latest statement.

How do you calculate accrued interest for a payoff example?

Assume:

• unpaid principal: $250,000;
• note rate: 6 percent;
• simplified 365-day year;
• 12 days of accrued interest; and
• no other amounts for this example.

Annual interest:

$250,000 x 0.06 = $15,000

Daily interest:

$15,000 / 365 = $41.09589

Interest for 12 days:

$41.09589 x 12 = $493.15, rounded

Simplified payoff:

$250,000 + $493.15 = $250,493.15

An actual note or payoff statement can use a different day-count method and include additional amounts. Use the stated convention in an exam problem.

How do you calculate a permitted percentage prepayment charge?

Assume a question establishes that a 1 percent charge is permitted and applies to a $350,000 outstanding balance prepaid in full.

Prepayment charge = $350,000 x 0.01 = $3,500

If the question does not establish that the charge is permitted, do not jump to the multiplication. Classify the loan and apply the law first.

How do acceleration and prepayment interact?

Acceleration can cause an involuntary early payoff because the lender demands the balance before the original maturity date. Regulation Z's prepayment rules can treat voluntary and involuntary early payment in specific ways. The contract and applicable law determine whether a charge can follow acceleration.

The clean exam approach is:

1. identify why the debt became due;
2. identify whether payment occurred before scheduled maturity;
3. find an express charge provision;
4. test the charge under applicable law; and
5. calculate only a permitted amount.

Avoid assuming that acceleration creates a prepayment penalty.

How do all four clauses work in one sale?

Consider a homeowner who sells a mortgaged property before the loan's scheduled maturity.

1. The proposed transfer raises the alienation or due-on-sale clause.
2. The lender may consent, approve an assumption or require payoff, subject to the contract and federal protected-transfer rules.
3. The seller requests a payoff statement.
4. A prepayment term is checked to see whether an authorized charge applies.
5. Closing funds pay the valid payoff amount.
6. Payment satisfies the secured debt, invoking the defeasance concept.
7. A satisfaction or certificate of discharge is prepared and recorded so the public record shows the mortgage discharged.

Acceleration may not be needed in an ordinary consensual closing because the parties arrange payoff. The same clauses can still explain the parties' rights.

What documents answer each mortgage-clause question?

What are the most common mortgage-clause misconceptions?

Misconception 1: Default and acceleration are the same event

Correction: Default is a failure to perform a required obligation. Acceleration is a remedy that can make the remaining debt due.

Misconception 2: Acceleration transfers title to the lender

Correction: New York is a lien-theory state. Acceleration concerns the debt's maturity, and foreclosure is the judicial enforcement process.

Misconception 3: Any missed payment instantly makes the full balance due

Correction: Read the option, notice, demand and cure provisions and the applicable law.

Misconception 4: Alienation means physical damage to property

Correction: In this context, alienation means transfer of ownership or an interest in property.

Misconception 5: Due-on-sale and acceleration are interchangeable

Correction: Due-on-sale identifies a transfer trigger. Acceleration describes the possible demand for the full debt.

Misconception 6: Every transfer permits due-on-sale enforcement

Correction: Federal law protects listed transfers for covered residential property.

Misconception 7: A protected transfer erases the mortgage

Correction: Protection from due-on-sale exercise does not by itself pay or discharge the lien.

Misconception 8: Defeasance gives the borrower title back in New York

Correction: The borrower already holds title in New York's lien-theory framework. Defeasance ends the mortgage's security effect after performance.

Misconception 9: Paying the debt automatically cleans the public record

Correction: The satisfaction or certificate of discharge must be handled and recorded under New York law.

Misconception 10: Every early payoff has a penalty

Correction: The charge must be stated and permitted. Many mortgages have no prepayment penalty, and several laws prohibit or limit the feature.

Misconception 11: The federal 2 percent limit creates a right to charge 2 percent

Correction: It is a maximum within a narrow permission rule. The contract and other law can permit less or none.

Misconception 12: A payoff balance is just the latest statement principal

Correction: A dated payoff can include accrued interest, authorized charges and credits.

What decision tree should you use on the exam?

When a question describes a mortgage event:

1. Find the event. Default, transfer, performance or early payment?
2. Name the clause. Acceleration, alienation, defeasance or prepayment?
3. Separate trigger from remedy. A transfer can trigger a due-on-sale option, which can produce acceleration.
4. Check whether the right is optional. The lender may have a choice rather than an automatic result.
5. Read conditions. Notice, cure, consent, property type and timing can matter.
6. Check statutory protections. Especially protected transfers and prepayment restrictions.
7. Separate debt from lien. Payment satisfies debt; recorded discharge clears the mortgage from land records.
8. Calculate last. Use only a charge or payoff method supported by the facts.

Worked scenario: Missed payment and cure notice

Facts

A borrower misses one monthly payment. The mortgage permits acceleration only after notice and expiration of a stated cure period. The lender has sent the required notice, but the cure period remains open.

Analysis

The missed payment is a default. The full balance is not yet established as due because the contract's acceleration conditions are not complete.

Answer

Identify default now and possible acceleration later. Do not select completed foreclosure or transfer of title.

Worked scenario: Sale without lender consent

Facts

A borrower conveys an investment property to an unrelated buyer and leaves the existing mortgage unpaid. The mortgage contains an enforceable due-on-sale clause, and no protected-transfer rule applies.

Analysis

The transfer activates the alienation issue. The lender can exercise its contract option to accelerate, subject to the loan terms and applicable law.

Answer

Alienation is the trigger. Acceleration is the possible remedy.

Worked scenario: Transfer to a borrower's child

Facts

A loan is secured by a covered one-family home. The borrower transfers an ownership interest to the borrower's child. No separate disqualifying event is stated.

Analysis

The federal protected-transfer list includes a transfer in which the borrower's child becomes an owner.

Answer

The lender may not exercise the due-on-sale option solely because of that protected transfer. The mortgage debt and lien remain unless paid or otherwise resolved.

Worked scenario: Full payoff but unreleased record

Facts

The borrower pays every authorized amount due. Months later, a title search still shows the mortgage without a recorded discharge.

Analysis

The debt has been paid, supporting defeasance and satisfaction. The public record still needs the discharge procedure required by New York law.

Answer

Avoid treating payment and recording as the same act. The recorded satisfaction or discharge clears the record.

Worked scenario: Calculate before checking the law

Facts

A prompt says the note mentions a 2 percent prepayment charge. It also says the loan is a covered New York subprime home loan under Banking Law section 6-m.

Analysis

Section 6-m prohibits the charge and makes it unenforceable for the covered loan.

Answer

The correct charge is not found by multiplying the balance by 2 percent. Apply the prohibition first.

Practice questions

Question 1

Which clause lets a lender demand the unpaid balance after a stated default?

A. Defeasance clause
B. Acceleration clause
C. Habendum clause
D. Release clause

Answer: B. Acceleration changes the maturity of the debt after the contract conditions are met.

Question 2

What is another common name for an alienation clause in a mortgage?

A. Due-on-sale clause
B. Deficiency clause
C. Escalation clause
D. Proration clause

Answer: A. The clause addresses an unapproved sale or transfer.

Question 3

A borrower misses a payment. Which event has definitely occurred from that fact alone?

A. Completed foreclosure
B. Transfer of title to the lender
C. Payment default
D. Recorded discharge

Answer: C. Additional facts are required to establish valid acceleration and foreclosure.

Question 4

What does defeasance mean in the mortgage context?

A. The lender can change the tax assessment.
B. Performance of the secured obligation defeats the mortgage security.
C. The buyer assumes every seller debt.
D. The note becomes an adjustable-rate loan.

Answer: B. Defeasance links payment or performance with the end of the security interest.

Question 5

Which statement correctly describes New York mortgage theory?

A. The mortgagee holds full title until the debt is paid.
B. The mortgage creates a lien securing the debt.
C. Recording the note transfers possession.
D. The lender becomes a tenant in common.

Answer: B. New York follows lien theory.

Question 6

Which transfer is listed in the federal protected-transfer rules for a covered residential loan?

A. Any transfer to an unrelated investor
B. Any 10-year lease with a purchase option
C. A transfer in which the borrower's child becomes an owner
D. Any transfer to a business entity

Answer: C. The statute includes the spouse-or-child ownership transfer, subject to its coverage and conditions.

Question 7

What is the main difference between satisfaction and recording a discharge?

A. Satisfaction concerns payment; recording updates the land records.
B. Satisfaction creates a new mortgage.
C. Recording changes the note rate.
D. There is no difference in any context.

Answer: A. Both steps matter to a clean payoff and title record.

Question 8

A permitted 1 percent charge applies to a $280,000 amount prepaid. What is the charge?

A. $280
B. $1,400
C. $2,800
D. $28,000

Answer: C. $280,000 multiplied by 0.01 equals $2,800.

Question 9

Which fact should be checked before calculating a prepayment penalty?

A. Whether the contract and applicable law permit the charge
B. The listing's room count only
C. The property's paint color
D. The broker's commission split

Answer: A. A mathematical amount is irrelevant if the charge is prohibited or absent from the contract.

Question 10

What can remain after a protected transfer that does not permit due-on-sale enforcement?

A. The mortgage debt and lien
B. No debt under any circumstances
C. Automatic title in the lender
D. A recorded satisfaction

Answer: A. Protection from exercise of due-on-sale does not itself satisfy the loan.

Frequently asked questions

What are the four mortgage clauses tested in this lesson?

They are acceleration, alienation or due-on-sale, defeasance and prepayment. They address default, transfer, satisfaction and early payment, respectively.

What does an acceleration clause do?

It can permit the lender to demand the entire unpaid debt after a contract-defined default or other stated event and completion of required conditions.

Is acceleration automatic after one late payment?

Not from that fact alone. The note, mortgage, notices, cure rights and applicable law determine whether the full debt has become due.

Does acceleration mean the lender owns the property?

No. New York follows lien theory, and foreclosure requires a judicial process.

What is an alienation clause?

It is a transfer restriction, commonly called a due-on-sale clause, that can permit the lender to demand payoff after an unapproved sale or transfer.

Are all family transfers exempt from due-on-sale?

No. Federal law lists particular protected transfers for covered residential loans. The relationship, property and transfer conditions matter.

Can a borrower put a home into a living trust?

Federal law protects a qualifying inter vivos trust transfer when the borrower remains a beneficiary and occupancy rights do not change. Other arrangements require separate analysis.

What does defeasance mean?

It means performance of the secured obligation defeats or ends the mortgage's security effect.

Is defeasance the same as a recorded satisfaction?

No. Defeasance is the contract concept. A satisfaction or certificate of discharge documents payment, and recording clears the public mortgage record.

What is a prepayment penalty?

For covered federal purposes, it is generally a charge for paying all or part of principal before it is due, subject to regulatory details and exclusions.

Does every New York mortgage allow a prepayment penalty?

No. The charge must be stated and permitted. Federal and New York laws prohibit or limit the feature for several covered loan categories.

What does a Loan Estimate show about prepayment?

For a covered transaction, it identifies whether the loan includes a prepayment penalty and provides required information about its amount and period.

Is accrued payoff interest a prepayment penalty?

Accrued interest through the payoff date is not the same as a penalty. The governing definition, contract and calculation method control any additional charge.

Is due-on-sale the same as prepayment?

No. Due-on-sale addresses a transfer and possible acceleration. Prepayment addresses principal paid before its scheduled due date and any permitted charge.

What should I study next?

Study foreclosure, assumption and taking subject to a mortgage next. Before moving on, review fixed, adjustable, balloon and graduated mortgage structures, the Real Estate Finance subject hub, and the glossary entries for lien, recording, mortgagor and mortgagee.

Sources and verification notes

This article was checked against primary government materials available through August 27, 2026. The central sources are:

• New York State Department of State, Real Estate Salesperson 77-Hour Curriculum, Subject 5 terms for acceleration, alienation, due-on-sale and prepayment penalty clauses;
• New York Real Property Law section 254, statutory construction of short-form mortgage clauses, including optional acceleration and traditional defeasance language;
• New York Real Property Law section 320, deeds intended as security and writings operating as defeasance;
• New York Real Property Law section 275, certificate of discharge after covered payment;
• New York Real Property Law section 321, recording a mortgage discharge;
• New York Real Property Actions and Proceedings Law section 1921, satisfaction and discharge procedures after payment;
• New York General Obligations Law section 5-501, the coverage-specific prepayment rule in subdivision 3(b);
• New York Banking Law section 6-l, acceleration and prepayment restrictions for covered high-cost home loans;
• New York Banking Law section 6-m, acceleration and prepayment restrictions for covered subprime home loans;
• United States Code, title 12, section 1701j-3, due-on-sale definition, contract enforcement and protected residential transfers;
• Code of Federal Regulations, title 12, section 191.5, limits on due-on-sale exercise and specified prepayment charges;
• Consumer Financial Protection Bureau, Regulation Z section 1026.32, federal prepayment-penalty definition and high-cost mortgage rule;
• Consumer Financial Protection Bureau, Regulation Z section 1026.37, Loan Estimate disclosure of prepayment penalties;
• Consumer Financial Protection Bureau, Regulation Z section 1026.43, permission conditions, maximum periods and amounts, and alternative offer requirements;
• Consumer Financial Protection Bureau, What is a prepayment penalty?, consumer explanation and document review; and
• New York courts, Smith v. Bank of America, N.A., New York's lien-theory treatment of mortgages.

The article does not state that one prepayment rule applies to every mortgage. Coverage turns on the borrower, property, purpose, lien, rate, product and transaction. It also does not treat payment as proof that the land records have been updated. A live payoff requires current loan documents, a dated payoff statement and professional review appropriate to the transaction.

The numerical examples are original teaching calculations. They use stated assumptions, not a live loan quote or a state-exam question.